- A very busy week boosted by stronger manufacturing reports from the Northeast region, better industrial production and tighter capacity utilization.
- Housing sales data were mixed: better sentiments from builders this month but weaker monthly housing starts and building permits in May.
- The headline CPI rose slightly faster than the consensus view in May; the 12-month increase surpassed 2% for the first time since late 2012.
- Initial jobless claims came in better than the consensus expectation with a small improvement for the 4-week moving average and lower continuing claims.
- U.S. equity markets rallied to record highs after the Fed reaffirmed its stance of keeping rates low for a prolonged period.
Despite potential escalating risks in Iraq and spill-over impact in the Middle-East, financial markets rallied after no major surprises from last week’s FOMC meeting. As expected, the Fed kept the short-term rate at 0.25% while reducing its asset purchases by another $10 billion to total of $35 billion starting in July. U.S. equity markets were led higher by small cap stocks, which outperformed both mid cap and large cap stocks for the week, but lagged for the year-to-date. The utility, healthcare, and energy sectors led the market – all generating north of a 2% return – while technology, telecom, and consumer cyclical sectors lagged. In general, defensive sectors beat sensitive and cyclical sectors.
Outside the U.S., international developed stocks underperformed U.S. stocks. The Thomson Reuters/INSEAD Asia Business Sentiment Index registered a two-year high in the second quarter, suggesting a better Asian economic outlook. The MSCI Pacific index beat the MSCI Europe index by 43 bps for the week, but underperformed by 3.6% for the year-to-date. Within the emerging markets, the MSCI BRIC index lost 81 bps, 31 bps behind the MSCI EM index. The Latin America region as a whole outperformed emerging countries in Europe and Asia.
BarCap U.S. Aggregate Bond index was up only by 4 bps last week. With no major surprises from the Fed’s meeting, the U.S. 10-year Treasury yield edged up 3 bps to 2.63% from a week ago. The Fed’s real GDP growth projection was lowered to 2.2% from a previous 2.9% for 2014, after factoring into a weaker Q1 economic result.
Measured by the Citi Non-U.S. World Government Bond index, foreign-developed sovereign bonds were up 20 bps, ahead of emerging market bonds by 18 bps. Global bond markets were fairly quiet amid the dovish tone of Fed Chair Janet Yellen’s comments on slowly withdrawing current stimulative monetary program.
U.S. REITs returned 1.5%, outperforming foreign REITs by 83 bps in the week. For the YTD, U.S. REITs delivered a strong total return of 18.2%, beating foreign REITs by 11.7%. Commodity returns were up 1.32% as measured by the DJ-UBS index, similar to a total return of 1.27% from the energy-heavy S&P GSCI Commodity index.
|Period ending 6/20/2014||1 Week (%)||YTD (%)|
|BarCap U.S. Aggregate||0.04||3.38|
|U.S. Treasury Yields||3 Mo.||2 Yr.||5 Yr.||10 Yr.||30 Yr.|
Sources: LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research. Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness. All information and opinions expressed are subject to change without notice. Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product. FocusPoint Solutions, Inc. is a registered investment advisor.